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Corporate governance: developments across the ditch


New Zealand looks like it will become the latest stock exchange to adopt corporate governance guidelines that improve corporate disclosure about environmental, social and governance (ESG) risks and mitigating actions.

That’s good news, as the changes are likely to bring the New Zealand stock exchange (NZX) into line with a growing number of exchanges worldwide that are incorporating guidance on disclosing (ESG) risks. (Australia got on board in 2014 with the 3rd edition of the ASX Corporate Governance Principles and Recommendations.)

It’s good news because investors everywhere are increasingly calling for better information on which to base their assessments about companies, with disclosure of material sustainability risks a key focus. In fact, just in the past week the investment behemoth, Blackrock, put out a report urging investors and asset managers to gather more information about climate change and other ESG risks in their portfolios.

Internationally a UN-supported group, the Sustainable Stock Exchanges (SSE) Initiative, is championing greater corporate transparency, especially around ESG issues. (Neither Australia nor New Zealand are partner exchanges in this initiative.) The SSE has a goal that all member stock exchanges as well as those that are members of the World Federation of Exchanges (WFE) provide listed companies with guidance on sustainability reporting by the end of 2016. To date, 15 exchanges have done so and 23 have committed to doing so. Another 41 exchanges are laggards.

At the end of August NZX released a consultation paper relating to its review of its own Corporate Governance Code. The paper outlined a raft of changes which it proposed to implement in the first quarter of 2017.

It comes after the regulator, the Financial Markets Authority (FMA) released a review of corporate governance disclosures by 45 companies, both listed and unlisted, concluding that there was still ‘work to be done’ to enable investors to find the information they needed to make informed investment decisions. The current NZX code contains no specific requirements in relation to reporting and dis closure practices.

The changes that the NZX is proposing focus on three areas:

  • Board diversity
  • ESG and health and safety reporting and
  • Remuneration reporting.

No surprises there. These are all areas of intense interest among stakeholders including investors.

What will be interesting to see is what direction the NZX takes on reporting of ESG risk and performance. The proposed clause on reporting states that “an issuer should provide both financial and non-financial disclosure and should indicate how non-financial targets are measured.” It notes that non-financial reporting may extend to ESG reporting.

The consultation paper is clear that the idea is to ensure that there is comparability between companies on the metrics and data that they report. There are two ways it suggests to achieve this:

In its consultation, the NZX specifically asks for views on whether it should develop its own ESG reporting guidance, or allow use of the GRI – or another – framework.

With the GRI G4 guidelines expected to be issued as standards within the next two months, a move to adopt them as a recommended reporting framework would certainly add momentum to the global movement for widespread sustainability reporting.

ACCSR is Australia’s most experienced certified GRI trainer. We will be providing short courses on how to transition to the new standards. Our next GRI-certified course in How to Prepare a Best Practice Sustainability Report will be held in Melbourne on November 16-17.

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